MARKETS UPDATE (10:30 pm EST)
There was a major event in the financial world today that is going to have a significant effect on all major markets moving forward now. That event was a surprise move by Switzerland to remove its three-year cap on the value of the Swiss franc against the euro. This cap had been in place since 2011. The cap was designed to keep the value of the franc on par with the euro during a time when many global investors were pulling their money out of an unstable euro zone and putting it into Swiss banks (and currency) which are well known for stability and security. This "safe-haven" influx of cash into Swiss banks had caused the franc to soar against the euro and had severely hurt Swiss domestic exporting (important to the Swiss economy) as Swiss goods had become more expensive. For this and other reasons the cap was established in the summer of 2011 and since then has been keeping the value of the Swiss franc in sync with the euro, that is, until now. Without any warning, the Swiss National Bank lifted the cap today and stated essentially that the 2011 crisis period has past, the Swiss economy has adjusted and that "... maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified." European economies are still in crisis today, however, so many analysts are questioning the wisdom of this decision. Some feel this could be the beginning of the end of the euro.
Not surprisingly, the value of the Swiss franc soared today and the euro plunged. Gold prices also soared (nearly $30) and directional momentum in gold charts shifted to 100% bullish. As I expected, It looks like gold is breaking out and we should now be looking for a spot to go long. Today's large surge, however, may be a "buy on the news" (of the Swiss bank decision) jump that may back down a bit over the next several days. Supporting this idea is the fact that prices are rising into the middle of a reversal zone (next Monday) and silver did not make a new high today while gold did (intermarket bearish divergence). Silver's directional momentum also remains mixed bullish and bearish. We need to remain cautious with all of our trading now as market volatility remains high (this will, unfortunately persist at least into mid-February) and sharp rises can easily be followed by sharp drops. Remaining on the sidelines of both gold and silver for now.
Despite its currently overbought state, the U.S. Dollar Index is staying remarkably buoyant. Today's plunging euro is likely supporting the dollar as investor cash fearing a collapsing European economy lately seems to perceive a safe haven in the U.S. dollar (or at least the dollar has been seen recently as the "least rotten" apple in a barrel of global currencies; of course now the Swiss franc seems like a much better choice). The dollar is still overdue for a correction, though, and it could be starting any day now. I should mention here that it is significant that the precious metals have been holding up so well in spite of the dollar's recent strength. This suggests an underlying strength now in gold and silver.
The surprise Swiss bank decision today may have spooked the equity markets. It shocked and confused many investors on Wall Street as it increased fears and concerns about a weak European economy. The DOW dropped 106 points but still did not break last week's low (17,262). The broad stock market is giving many contradictory (bullish and bearish) signals right now which makes it very difficult to call. There are, however, some clear lines being drawn in the sand. If the DOW closes below 17,200 it is most likely turning bearish, and a close below 17,000 would be very bearish and a signal to sell short. On the other hand, if this index can stay above 17,000 and start to rally over the next several days we could see a significant rise into early February that may or may not make a new all-time high. It is late in the current cycle of the DOW so it is very possible that early February (another reversal point) could coincide with the bottom of this cycle, or it could end up being the final top from which we would fall to the bottom. The behavior of the markets over the next several days should give us a better idea as to which of these scenarios (or another) will play out. I should mention here that charts for the price of the industrial metal copper have recently turned very bearish; in fact it appears that the price of this metal has broken critical support around $2.75 and is now breaking down. This does not bode well for equity markets as copper is often regarded as a bellwether of the overall condition of the economy. This factor gives support to the bearish case stated above. Still on the sidelines of the broad stock market.
As an important industrial commodity, crude oil can also be a barometer of global economic conditions. A drop in crude prices could indicate a lack of demand from sluggish industries, but prices can also be manipulated for political reasons which is what I think is happening now. According to cycle analysis and timing, a very significant bottom is due in crude oil anytime between now and the end of February. Technical studies show the maximum low for this bottom to be around $45. We have already broken a bit below that low ($44.20 on Tuesday) but the price has come back up and is now hovering a bit above $45. Because of price manipulation, it is possible for the low to fall below target projections, and this is a concern right now. If the bottom is in, then we should see a bullish momentum signal soon, and I will use that as a sign to go long. Out of this market for now.
There was a major event in the financial world today that is going to have a significant effect on all major markets moving forward now. That event was a surprise move by Switzerland to remove its three-year cap on the value of the Swiss franc against the euro. This cap had been in place since 2011. The cap was designed to keep the value of the franc on par with the euro during a time when many global investors were pulling their money out of an unstable euro zone and putting it into Swiss banks (and currency) which are well known for stability and security. This "safe-haven" influx of cash into Swiss banks had caused the franc to soar against the euro and had severely hurt Swiss domestic exporting (important to the Swiss economy) as Swiss goods had become more expensive. For this and other reasons the cap was established in the summer of 2011 and since then has been keeping the value of the Swiss franc in sync with the euro, that is, until now. Without any warning, the Swiss National Bank lifted the cap today and stated essentially that the 2011 crisis period has past, the Swiss economy has adjusted and that "... maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified." European economies are still in crisis today, however, so many analysts are questioning the wisdom of this decision. Some feel this could be the beginning of the end of the euro.
Not surprisingly, the value of the Swiss franc soared today and the euro plunged. Gold prices also soared (nearly $30) and directional momentum in gold charts shifted to 100% bullish. As I expected, It looks like gold is breaking out and we should now be looking for a spot to go long. Today's large surge, however, may be a "buy on the news" (of the Swiss bank decision) jump that may back down a bit over the next several days. Supporting this idea is the fact that prices are rising into the middle of a reversal zone (next Monday) and silver did not make a new high today while gold did (intermarket bearish divergence). Silver's directional momentum also remains mixed bullish and bearish. We need to remain cautious with all of our trading now as market volatility remains high (this will, unfortunately persist at least into mid-February) and sharp rises can easily be followed by sharp drops. Remaining on the sidelines of both gold and silver for now.
Despite its currently overbought state, the U.S. Dollar Index is staying remarkably buoyant. Today's plunging euro is likely supporting the dollar as investor cash fearing a collapsing European economy lately seems to perceive a safe haven in the U.S. dollar (or at least the dollar has been seen recently as the "least rotten" apple in a barrel of global currencies; of course now the Swiss franc seems like a much better choice). The dollar is still overdue for a correction, though, and it could be starting any day now. I should mention here that it is significant that the precious metals have been holding up so well in spite of the dollar's recent strength. This suggests an underlying strength now in gold and silver.
The surprise Swiss bank decision today may have spooked the equity markets. It shocked and confused many investors on Wall Street as it increased fears and concerns about a weak European economy. The DOW dropped 106 points but still did not break last week's low (17,262). The broad stock market is giving many contradictory (bullish and bearish) signals right now which makes it very difficult to call. There are, however, some clear lines being drawn in the sand. If the DOW closes below 17,200 it is most likely turning bearish, and a close below 17,000 would be very bearish and a signal to sell short. On the other hand, if this index can stay above 17,000 and start to rally over the next several days we could see a significant rise into early February that may or may not make a new all-time high. It is late in the current cycle of the DOW so it is very possible that early February (another reversal point) could coincide with the bottom of this cycle, or it could end up being the final top from which we would fall to the bottom. The behavior of the markets over the next several days should give us a better idea as to which of these scenarios (or another) will play out. I should mention here that charts for the price of the industrial metal copper have recently turned very bearish; in fact it appears that the price of this metal has broken critical support around $2.75 and is now breaking down. This does not bode well for equity markets as copper is often regarded as a bellwether of the overall condition of the economy. This factor gives support to the bearish case stated above. Still on the sidelines of the broad stock market.
As an important industrial commodity, crude oil can also be a barometer of global economic conditions. A drop in crude prices could indicate a lack of demand from sluggish industries, but prices can also be manipulated for political reasons which is what I think is happening now. According to cycle analysis and timing, a very significant bottom is due in crude oil anytime between now and the end of February. Technical studies show the maximum low for this bottom to be around $45. We have already broken a bit below that low ($44.20 on Tuesday) but the price has come back up and is now hovering a bit above $45. Because of price manipulation, it is possible for the low to fall below target projections, and this is a concern right now. If the bottom is in, then we should see a bullish momentum signal soon, and I will use that as a sign to go long. Out of this market for now.
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